China Moves for Kazakh Oil

China Investment Corp's most recent acquisition in Kazakhstan not only signals its growing fears about energy security, it also raises questions about the importance it attaches to Central Asian energy reserves.

Following state-owned China National Petroleum Corp's 50% purchase of MangistauMunaiGaz in April this year for a reported $1.4 billion, China's sovereign wealth fund, CIC, worth $298 billion at the start of 2009, said Thursday that it was paying almost $1 billion for an 11% stake in KazMunaiGas EP, a subsidiary of Kazakhstan's national oil and gas company.

China is trying to pad insufficient domestic resources with foreign-sourced oil and gas, and oil-rich Central Asia is becoming increasingly key to that pursuit. The region is estimated to hold as much as 200 billion barrels of oil.

Chinese oil consumption is projected to increase by around 24% from 2008 to 2013, according to a report from Business Monitor International, potentially forcing the country to import six million barrels per day by the end of that period. In January this year China imported oil at a rate of3.6 million barrels per day. Similarly, China will require imports of more than 35 billion cubic meters of gas per year by 2018.

China has long been involved economically with Central Asia; in 1996, China came together with Kazakhstan, Kyrgyzstan, Russia and Tajikistan to form the Shanghai Five, a diplomatic mutual-security organization. It was later renamed the Shanghai Cooperation Organization (SCO) in 2001 with the accession of Uzbekistan.

Although the SCO was aimed at assuaging Central Asian security concerns, it has also provided a negotiating platform for China to deploy its "soft" economic policy in the form of loan-for-oil, gas and assets agreements.

In 2008, for instance, China lent Russian oil giant
Rosneft
and pipeline company Transneft $15 billion and $10 billion respectively, to be paid back with cheap oil over the deal's 20-year life. In July--under the auspices of the SCO--China lent $10 billion to Kazakhstan to buoy its economy in return for promises of oil and gas, which April's MangistauMunaiGaz deal was part of.

China's recent backyard acquisitions in Kazakhstan, Kyrgyzstan and Turkmenistan have attracted much scrutiny, and there is even talk of an energy "Great Game" between China and Russia. The strategic competition is zero-sum--what Beijing secures, Moscow loses--and both countries are scrambling to control reserves in Central Asia.

But some analysts suggest that although Central Asia's geographic proximity to China makes its energy reserves attractive and quickly conveyable using existing Central Asian pipelines, it is not necessarily a strategic regional focus for the Chinese.

China has recently invested in farther-flung destinations. In February China injected $4 billion into its Venezuelan joint venture, in return for a commitment from PDVSA, Venezuela's state-run oil company, to sell CNPC between 80,000 and 200,000 barrels per day by 2015.

The same month, China loaned Brazilian state-owned oil major
Petrobras
$10 billion in exchange for a ten-year oil supply memorandum. Just this week, state-controlled
China National Offshore Oil Corp.
pitched to the Nigerian government for six billion barrels of crude oil, worth up to $30 billion.

Anthony Froggatt of London think tank Chatham House maintains that while Central Asian purchases are a response to increasing international competition, "the Chinese government is deploying multiple strategies from multiple sources. ... Central Asia is just one part of the puzzle."